Trump opens two-front economic pressure campaign against China

Treasury Secretary Scott Bessent arrives to speak at a news conference [AP Photo]

The Trump administration is preparing to intensify economic pressure on China on two fronts, weighing a new tariff on Chinese goods while warning Beijing that its commercial ties with Iran could expose Chinese banks and companies to sweeping U.S. sanctions.

President Donald Trump is considering an additional 7.5% tariff on Chinese imports in response to allegations that Beijing is flooding international markets with underpriced manufactured goods, three people familiar with the discussions told The Associated Press.

The tariff has not been finalized, and Trump could still change course. But the relatively modest rate appears designed to pressure China without destroying the one-year trade truce between the world’s two largest economies.

It also comes ahead of an expected White House meeting between Trump and Chinese President Xi Jinping in late September. That leaves Washington attempting a difficult balancing act – increasing pressure on Beijing while avoiding retaliation that could derail the summit before it begins.

The proposed measure would target what the administration describes as China’s excess industrial capacity. Chinese factories have expanded production in sectors ranging from electric vehicles and solar panels to steel, cement and machinery, even as domestic demand has slowed.

Much of that additional output has been directed overseas, alarming governments that argue their domestic industries cannot compete with heavily supported Chinese manufacturers. Surging exports helped lift China’s trade surplus to a record of nearly $1.2 trillion last year.

The concern is not confined to the United States. European governments and several emerging economies have also complained that an influx of inexpensive Chinese goods could undermine local manufacturers, eliminate jobs and leave strategically important industries dependent on Beijing.

China rejects the allegation that it deliberately produces more than global markets can absorb. Its Commerce Ministry argues that the country’s industrial competitiveness reflects investment, innovation and efficient supply chains rather than unfair practices or indiscriminate state support.

Beijing also maintains that strong demand for Chinese products – particularly electric vehicles, batteries and renewable-energy equipment – demonstrates their competitiveness and contributes to the global transition toward cleaner energy.

The Chinese Embassy in Washington said trade disagreements should be addressed through bilateral negotiations instead of unilateral tariffs. It rejected the premise that China has a problem with excess capacity and warned against politicizing normal commercial competition.

For the White House, however, the issue has become both economic and political. Trump has long presented tariffs as a way to protect American factories, reduce trade deficits and persuade companies to relocate production to the United States. Critics counter that import duties are generally paid by American businesses and can ultimately raise prices for consumers.

The proposed tariff would emerge from a Section 301 investigation launched under the Trade Act of 1974. The law allows the president to impose penalties on countries found to be engaging in discriminatory or unfair practices affecting American commerce.

It also gives the White House a new legal route following a Supreme Court ruling earlier this year that struck down Trump’s attempt to impose sweeping “reciprocal” tariffs on nearly every U.S. trading partner.

After that ruling, the administration launched formal investigations into industrial overcapacity and enforcement of forced-labor restrictions in China and several other economies. Those under scrutiny include the European Union, Japan, South Korea, India, Mexico, Singapore, Switzerland and a number of Southeast Asian countries, AP added.

It remains unclear whether Washington is also close to announcing decisions involving those economies or whether China will be treated as a separate and more urgent case.

Iran sanctions add another flashpoint

The trade dispute is becoming entangled with a separate American campaign to isolate Iran economically after nearly six months of war involving the United States, Israel and Tehran.

U.S. Treasury Secretary Scott Bessent announced Monday that Washington would widen secondary sanctions against countries, banks and companies continuing to do business with Iran. China, Iran’s largest trading partner and biggest buyer of Iranian oil, is an obvious target even though Bessent did not initially identify individual countries that would be penalized.

Bessent described the measures as the most extensive U.S. financial offensive ever mounted against an adversary. He warned that banks and businesses helping Iran maintain access to international markets could share in Tehran’s financial isolation.

“No one” would be beyond the reach of American sanctions, Bessent said when specifically asked about Chinese banks, as cited by BBC News.

Trump is also expected to contact foreign leaders with specific requests to end their governments’ financial and commercial dealings with Iran. The administration appears to be betting that access to the American financial system remains too valuable for most banks and companies to risk.

Secondary sanctions are particularly powerful because they do not merely prohibit American entities from trading with a targeted country. They can also punish foreign institutions that continue such business, potentially cutting them off from U.S. banks, dollar transactions and the world’s most important financial market.

China responded by promising to defend its interests. Foreign Ministry spokesperson Lin Jian said Beijing firmly opposed what he called illegal unilateral sanctions and would take all necessary measures to protect Chinese companies.

“Cooperation between China and Iran has always been conducted within the framework of international law and should not be interfered with or disrupted,” Lin said.

Beijing has long argued that sanctions imposed without authorization from the United Nations Security Council lack international legitimacy. Washington, by contrast, maintains that access to the American market and financial system can be conditioned on compliance with U.S. restrictions.

China’s purchases of Iranian oil have declined under the American naval blockade of Iranian ports, but the broader commercial relationship remains important to Tehran. Chinese demand has provided Iran with revenue and an outlet for oil exports despite years of Western sanctions.

Iran has also dismissed the expanded pressure. Economy Minister Ali Madanizadeh said Tehran had prepared a two-year plan to manage additional sanctions and possessed its own tools to resist Washington.

“The government is and was ready,” he told Iranian state television, predicting that the measures would produce another defeat for the United States.

Yet the sanctions arrive when Iran’s economy is already suffering from previous restrictions, wartime disruption and reduced energy exports. Washington hopes further isolation will deprive Tehran of revenue and force it to make concessions, although the administration has provided few details about the timing or exact scope of the measures.

Rare earths give Beijing leverage

The convergence of the tariff and sanctions disputes raises the risk of Chinese retaliation just weeks before Trump and Xi are expected to meet.

Washington may want to separate the issues – presenting the tariff as a limited trade measure and the Iran sanctions as a national security decision. Beijing is unlikely to see such a neat distinction. From China’s perspective, both measures represent attempts to use American market and financial power to constrain Chinese economic policy.

China also possesses considerable leverage. It processes most of the world’s rare earths and other critical minerals needed to manufacture semiconductors, electric vehicles, defense systems and numerous high-tech products.

Beijing has already tightened controls on rare-earth exports during previous trade negotiations. Further restrictions could disrupt American manufacturers and complicate Trump’s efforts to rebuild domestic industrial capacity – the very objective behind many of his tariffs.

China could also respond through regulatory investigations, delays in approving corporate transactions, restrictions on American agricultural purchases or targeted action against U.S. companies operating in the Chinese market.

Such retaliation would carry costs for China as well. Beijing is trying to support economic growth, attract investment and stabilize relations with Washington. A full confrontation could weaken exports, unsettle markets and further suppress domestic confidence.

That mutual vulnerability helps explain why the proposed tariff has been set at 7.5% rather than at the far higher levels Trump has previously threatened. The administration appears to want a penalty large enough to demonstrate resolve but limited enough to preserve negotiations.